Jefferies Describes The Endgame: Europe Is Finished

The most scathing report describing in exquisite detail the coming financial apocalypse in Europe comes not from some fringe blogger or soundbite striving politician, but from perpetual bulge bracket wannabe, Jefferies and specifically its chief market strategist David Zervos. "The bottom line is that it looks like a Lehman like event is about to be unleashed on Europe WITHOUT an effective TARP like structure fully in place. Now maybe, just maybe, they can do what the US did and build one on the fly - wiping out a few institutions and then using an expanded EFSF/Eurobond structure to prevent systemic collapse. But politically that is increasingly feeling like a long shot. Rather it looks like we will get 17 TARPs - one for each country. That is going to require a US style socialization of each banking system - with many WAMUs, Wachovias, AIGs and IndyMacs along the way. The road map for Europe is still 2008 in the US, with the end game a country by country socialization of their commercial banks. The fact is that the Germans are NOT going to pay for pan European structure to recap French and Italian banks - even though it is probably a more cost effective solution for both the German banks and taxpayers....Expect a massive policy response in Europe and a move towards financial market nationlaization that will make the US experience look like a walk in the park. " Must read for anyone who wants a glimpse of the endgame. Oh, good luck China. You'll need it.

Full Report:

In most ways the excess borrowing by, and lending to, European sovereign nations was no different than it was to US sub prime households. In both cases loans were made to folks that never had the means to pay them back. And these loans were made in the first place because regulatory arbitrage allowed stealth leverage of the lending on the balance sheets of financial institutions for many years. This levered lending generated short term spikes in both bank profits and most importantly executive compensation - however, the days of excess spread collection and big commercial bank bonuses are now long gone. We are only left with the long term social costs associated with this malevolent behavior. While there are obvious similarities in the two debtors, there is one VERY important difference - that is concentration. What do I mean by that? Well specifically, there are only a handful of insolvent sovereign European borrowers, while there are millions of bankrupt subprime households. This has been THE key factor in understanding how the differing policy responses to the two debt crisis have evolved.

In the case of US mortgage borrowers, there was no easy way to construct a government bailout for millions of individual households - there was too much dispersion and heterogeneity. Instead the defaults ran quickly through the system in 2008 - forcing insolvency, deleveraging and eventually a systemic shutdown of the financial system. As the regulators FINALLY woke up to the gravity of the situation in October, they reacted with a wholesale socialization of the commercial banking system - TLGP wrapped bank debt and TARP injected equity capital. From then on it has been a long hard road to recovery, and the scars from this excessive lending are still firmly entrenched in both household and banking sector balance sheets. Even three years later, we are trying to construct some form of household debt service burden relief (ie refi.gov) in order to find a way to put the economy on a sustainable track to recovery. And of course Dodd-Frank and the FHFA are trying to make sure the money center commercial banks both pay for their past sins and are never allowed to sin this way again! More on that below, but first let's contrast this with the European debt crisis evolution.

In Europe, the subprime borrowers were sovereign nations. As the markets came to grips with this reality, countries were continuously shut out from the private sector capital markets. The regulators and politicians of course never fully understood the gravity of the situation and continuously fought market repricing through liquidity adds and then piecemeal bailouts. In many ways the US regulators dragged their feet as well, but they were forced into "getting it" when the uncontrolled default ripped the banks apart. Thus far the Europeans have been able to stave off default because there were only 3 borrowers to prop up - Portugal, Ireland and Greece. The Europeans were able to do something the Americans were not - that is "buy time" for their banking system. And why could they do this - because of the concentrated nature of the lending. In Europe, there were only 3 large subprime borrowers (at least so far), so it was easy to front them their unsustainable payments - for a while. But time is running out. Of couse, the lenders (ie the banks) have always been dead men walking!

At the moment, the European policy makers – after much market prodding - have finally come to grips with the gravity of their situation. And having seen the US bailout movie, they know all too well what happens when a default of this caliber rips through the financial system. The reason the EFSF was created in the first place was so that there could be some form of a European TARP when the piper finally had to be paid and the defaults were let loose. Certainly many had hoped the EFSF could be set up as a US style TARPing mechanism (like our friend Chrissy Lagarde suggests). The problem of course is that there are 17 Nancy Pelosis and 17 Hank Paulsons in the negotiation process. And while the Germans are likely to approve an expanded TARP like structure on 29-Sep, it increasingly looks like it may be too little too late. The departure of Stark, the German court ruling on future bailouts/Eurobonds, the statements by the German economy minister and the latest German political polls all suggest that Germany is NOT interested a full scale TARPing and TLPGing process across Europe. They somehow think they will be better off with each country going at it alone.

The bottom line is that it looks like a Lehman like event is about to be unleashed on Europe WITHOUT an effective TARP like structure fully in place. Now maybe, just maybe, they can do what the US did and build one on the fly - wiping out a few institutions and then using an expanded EFSF/Eurobond structure to prevent systemic collapse. But politically that is increasingly feeling like a long shot. Rather it looks like we will get 17 TARPs - one for each country. That is going to require a US style socialization of each banking system - with many WAMUs, Wachovias, AIGs and IndyMacs along the way. The road map for Europe is still 2008 in the US, with the end game a country by country socialization of their commercial banks. The fact is that the Germans are NOT going to pay for pan European structure to recap French and Italian banks - even though it is probably a more cost effective solution for both the German banks and taxpayers.

Where the losses WILL occur is at the ECB, where the Germans are on the hook for the largest percentage of the damage. And these will not just be SMP losses and portfolio losses. It will also be repo losses associated with failed NON-GERMAN banks. Of course in the PIG nations, the ability to create a TARP is a non-starter - they cannot raise any euro funding. The most likely scenario for these countries is full bank nationalization followed by exit and currency reintroduction. Bring on the Drachma TARP!! The losses to the remaining union members from repo and sovereign debt write downs at the ECB will be massive (this is likely the primary reason why Stark left). It will require significant increases in public sector debt and tax collection for remaining members. And for the Germans this will probably be a more costly path. Nonetheless, politics are the driver not economics. There is a reason why German CDS is 90bps and USA CDS is 50bps – Bunds are not a safe haven in this world – and there is no place in Europe that will be immune from this dislocation. Expect a massive policy response in Europe and a move towards financial market nationlaization that will make the US experience look like a walk in the park. Picking winners and losers will be VERY HARD but let’s look at a few weak spots –SocGen 12b in market cap (-70% this year) with assets of 1.13 trillion BNP 31b in market cap (-55% this year) with assets of 2 trillion Unicredito 13b in market cap (-70% this year) with assets of 1 trillion Intesa 14b in market cap (-70% this year) with assets of 700b Compare this with the USA where we have - JPM 125b in market cap with assets of 2.1 trillion BAC 70b in market cap with assets of 2.2 trillion

Importantly, France GDP is only 2 trillion and in bank balance sheets are some 400% of that number. The banks are dead men walking with massive leverage to both home country income as well as assets. The governments are about to take charge and Europe as a whole is about to embark on a sloppy financial market socialization process that has been held back for nearly 2 years by 3 bailouts. The weak links will not be able to raise enough Euros/wipe out enough private sector equity to get this done, so there will be EMU members that need to exit and use a reintroduced currency for this process. We put a Greek drachma on the front cover of our Global Fixed Income Monthly 20 months ago for a reason.

I am deriving no entertainment value from reading this shit anymore. It is exhausting and tedious. If there was some guaranteed real return of 2% out there somewhere, I would shove all my money into it, turn off the internet, and get my life back. As it stands now, I feel like I have been (albeit successfully) holding back the forces of evil sitting in some fox hole for a dozen years. This is getting old.

About a year and a half ago, after liquidating all of my city assets, I bought an old abandoned trailer on 10 acres out in the sticks. After a quick renovation, I dumped all my remaining materal goods there and left on a 6 month (so far) 20,000 mile camping trip. It was good to clear my head but I've still followed the slow motion train wreck via the internet.

I wasn't sure how a city slicker like myself would take to living in the sticks, hence the cheap dump in case I wanted to abandon the idea. It turns out I love it. We pulled into a city a few days ago and bought a much better 10 acre place through the wonders of the internet on an online auction. I've nver seen the place but a friend did stop by and take a couple of dozen photos. It's only about a mile from my current redoubt so I know the neighborhood.

I'm looking forward to getting off the road and immersing myself into raising organic grass fed beef. Hopefully I can just ignore the rest of this garbage.

we live on about 50 acres in a modest house, raise goats and tend large gardens. with satellite setup we can remain attached as much as we need to the rest of the world, or just unplug and say 'fuck it all'.

it's peaceful and self-satisfying. and it isn't a 'newness' thing. we have had a place in the sticks since 1998. and it never gets old...in fact with each new craptacular Black Swan it gets better.

I am not certain it was entertaining to begin with. The implications are huge and the consequences dire. Maybe the "entertainment value" was actually a feeling of being better informed than the average Joe.

I will tell you how it has made me feel, very much like I imagine most Jews felt in Germany in the 1930's. I have seen a lot of interviews with survivors of that era and almost all of them say it was hard to feel panic over the things done and said during that time because one just could not believe that the most civilized and advanced of nations would allow such a thing to happen, that it was a phase of scapegoating rhetoric they had endured all too often and it would pass as it always did. There have been many scares in the past because there have always been stupid people who must blame you for all the problems. It must have seemed as though they were misunderstanding something on a very basic level because there are contradictions everywhere, and anyway, it all seemed to happen in slow motion. Things would get just a little worse and you would get used to it. No one thing would happen on any new day to make you wake up and say SHIT! I need to get my butt outta here, at least until the Kristallnacht, and we have not yet had that economic equivalent yet. Even with the Kristallnacht there were people in denial. Many thought, maybe if I can just figure out how to hang on a little bit longer they will wake from the insanity and correct the problem, become civilized again.

Some Jews realized what was happening and fled Germany, just as some of you are fleeing your old lives, and you know that by dropping off the map of your old lives you risk ridicule as an alarmist, it is a big change that requires conviction that you are correct and that the sickness in the nation is deep and black, deadly serious. Today we call those the smart ones and wonder why if they knew it was that bad and saw the possibility of death camps, why then did the rest not see it and go?

But, even of the smart ones to flee Germany most went to France, or Holland, even Poland, just as many here are fleeing equities and debt markets for gold, like when the shitstorm starts in earnest they will not demand you sell to the government for a fraction of your real invested value. Some are buying survivalist acres far from crowded urban centers thinking to insulate themselves from what is to come, but the problem is not geographic, it is in the sick, diseased system in which we all live. I have often predicted that as we are going now those with the foresight to protect wealth into the impoverished future will indeed be rich once all others are poor, even when the gold is confiscated there will be people with productive land and food, shelter, but that then will become the standard of wealth so that as mobs of starving humanity see you have what they must have you make yourself a target, you can hold a few off for a while, but you can't hold off hordes forever.

I think many said to themselves this is my home, the life I am attached to and love, maybe it is worse than I can see and maybe there will be death, but my life is here and I would rather die than leave. Maybe they believed that when the rhetoric of menace was turned to action and killings began for real that would be what woke the powerful up to their own wrongs because then they would understand what consequence there was to the evil they had been speaking for a decade. And I think many simply did not have the resources to do anything about their situation, they saw it coming and could do no more than watch in horror. Even when they thought of leaving they could not see where they could flee to. Stories abounded of people leaving and being turned away, as with the ship in Havana harbor that was turned away. America was not taking refugees without them having money and connections, Britain was not allowing refugees into Palestine. So, many knew what was coming but were prevented from acting by a sense of utter hopelessness. They could not even control the few feet of personal space around their body no less affect policy. How many were in death camps saying to themselves this just cannot be real? When will they wake up? How can this be?

There are so many parallels in the world today between that era of fascist thuggery and modern economics. And in the comparisons, as a person just above a working class but solidly below middle class, I feel like a Jew of that time. Not just any Jew either, but one that bears a striking resemblance to the propaganda posters pasted all over the Reich. And we have the GOP in this country now who seem to liken us to that film in which rats are fleeing into the sewers, we have all seen that footage from "The Eternal Jew." And yet all the while I know I am not those things, that I have been a faithful citizen who has always done the right thing, this must somehow be my fault, good people would not permit such injustice would they?

If any of my analogy strikes a nerve for you then understand this, in my analogy it is not even 1938 yet, the worst by far is yet to come and the knowledge that history will vindicate you will be of little comfort when you are dispossessed and voluntarily step through the gates of the FEMA/Homeland Security camp gates because that will be where the feeding stations are erected after the collapse. People wonder about the rumors of such camps in remote parts of America capable of handling millions of people, how would a nation like America get millions into such concentration camps? Simple, make those seem like the places of hope people can flee to for safety. You don't force people in on boxcars, you get them to camp by the gates waiting for their turn to go inside.

The only way to fix the future left to us is to cure the minds of TPTB, make them see the evil of their ways, or eliminate them before they eliminate us.

Excellent essay!! I totally agree with your diagnosis of the disease but disagree strongly with your prescription for the cure...

"The only way to fix the future left to us is to cure the minds of TPTB, make them see the evil of their ways, or eliminate them before they eliminate us."

I don't see either of your suggestions as viable options.

Firstly, you cannot make TPTB "see the evil of their ways". They are not doing this by accident ... they have been planning and carefully executing this global takeover for generations (in some of their families, for hundreds of generations). In fact, the superstitions that they impose on their followers (Sabbateans and Jesuits alike) are evil ... they are told to worship Lucifer! And an integral part of their plan is to reduce (ie. kill off!) the world population by over 90% down to a "manageable" size!

Secondly, you cannot "eliminate" them. Not only would that be stooping to their level and methodology, but it would also be a fruitless pogrom. You can't kill an idea, you must render it sterile with a better idea. Philip IV didn't end secret societies by attempting to kill off the Knights Templar in 1307. Neither did Pope Clement XIV end the Jesuits by "permanently" banning them in 1773. Neither did Hitler eliminate the Jews from Europe by attempting to kill them off in WWII.

What we really need to do is to take back our sovereignty from the globalists ... house by house, township by township, city by city, county by county, sovereign state by sovereign state. Starve their failed central planning and control organs (UN, EU, Washington DC) by reinstating free trading local communities with localised governments to address local needs and concerns.

Central planning has been a failure and is imminently dangerous to your health ... SECEDE NOW!!

I agree it sounds like an unlikely plan, but violently deposing TPTB has a solid history of working even if the programs implemented afterward were dismal failures, like communism post Russian Revolution. Still, it has to be simpler than taking back sovereignty block by block and town by town, and as it is attempting to starve failed central planning will only starve you.

Things would get just a little worse and you would get used to it. No one thing would happen on any new day to make you wake up and say SHIT! I need to get my butt outta here,......... Many thought, maybe if I can just figure out how to hang on a little bit longer they will wake from the insanity and correct the problem, become civilized again.

Yes, well said boiler. The quote above is something I see as happeneing today. A slow, steady grind into poverty and depression and maybe worse. Your condemnation of the GOP is, however, somewhat myopic. Not that the GOP is doing any kind of decent job and doesn't deserve a good slap upside the head. The unfortunate choice is that you default to the Dems which is really the Progressives. I should hope that the last 2 years would have opened your eyes to that reality. Nevertheless, good job. Thanks.

All propaganda has to be popular and has to accommodate itself to the comprehension of the least intelligent of those whom it seeks to reach.Adolf Hitler

And yet all the while I know I am not those things, that I have been a faithful citizen who has always done the right thing, this must somehow be my fault, good people would not permit such injustice would they?

That's the tragedy of it. Everyone will get lumped together for the wickedness of a vile 'conservative' minority.

Unfortunately, that minority ALSO don't know when to stop, or simply just refuse to stop, until it's far too late (and yeah, it is too late ... they even call it doing gOD's werke ... so who is the more destructive ... or the more ignorant party in this death dance?).

Look around us. As you say, it's already happened ... unnoticed ... and we are at the end of the beginning of something desperately foul.

The more 'justice' is made into a joke, by TPTB, the more ordinary people will reject it in reply and recourse, and then the arbitary process you describe will take over.

Ah, yes Vanuatu, ... I've considered moving there to escape the constant high-pressure-bullshit and utter piffle and drivel that eminates from the Australian media and the capitals, especially Canberra ... and the resulting crap pseudo-aussie pop-kulture ... it bothers me that much that I'd even leave just to get some sembalance of sanity and dignity back ... so greviously disappointing it is.

But I will not leave like that. I will tell them to go fuck themselves because this is MY world, and my home, and I insist that they fuck-off somwhere else instead of me, or else change their vile ways.

No, this is the precisely the crisis that was made to order to take advantage of the Obama moment.

On September 20, 2010, a report was presented jointly by the US National Intelligence Council and the EU institute for Securities Studies. It was called ‘Global Governance 2025: at a critical juncture’ .

Mr Giovannie Grevi, former research fellow EUISS, made a telling comment about his goals for global governance and his fear was that the world between 2010 and 2025 would be “business as usual, barely keeping afloat kind of scenario wherby we don’t have a crisis that is big enough to rock the boat.”

Banning Garret, moderator, and Director of the Program on Asia of the Atlantic Council proposed a solution to risk of not making sufficient progress towards the desired 2025 Global Governance ouctome:

“Is this a timeline problem?…If we move ahead more quickly, see this as an urgent problem…these outcomes are less likely.”

Mr. Alvaro De Vasconcelos, Director of EUISS wrapped things up with the following:

We have an American President that is in favor of multilateralism. Is this window of opportunity to stay there forever? I am not sure at all. This is a very particular moment because of the pro-multilateral appraoch of the United States, and this, what we have called the Obama moment, is a window of opportunity for Europe and certainly for the other rising powers if we want really to move to a more effective multilateral system.

What will The Bernank do facing the Kobayashi Maru? Another dead cat punt?

Kobayashi Maru
A no-win situation caused by a set of rules that can only be won by changing the rules, in effect, cheating. This term comes from the name of a small ship in distress in a scenario shown in a Star Trek movie. According to the film, the scenario is featured in a training simulator for students attempting to become ship's captains. They receive a distress signal from the Kobayashi Maru and can either attempt to rescue it and be destroyed by enemy forces or leave it and let it be destroyed. James T. Kirk, according to the film, is the only person to have won the scenario--by reprogramming the simulator. Kobayashi Maru, loosely translated, means "Little wooden ship."
Someone experiencing a Kobayashi Maru can be said to be between a rock and a hard place.

All currencies down against all tangible assets (particularly those not already overvalued via credit based speculation like housing) will be a distinctly separate revaluation which will involve gold too.

Only gold benefits from the double-whammy. But we all benefit from the new monetary system.

The perps, banksters, and fraudsters have used the last three years to do CDS on their unlawful, and immoral activities. The actions have been repaackaged and resold so many times we really don't know "who dunnit", we just know it happened.

The financial cost of incarceration would be enormous in those medium security prisons where white collar criminals go. We should put them in tents out in the desert ande feed them bologna. If tents are good enough for our troops in Iraq and Afghanistan, they are more than good enough for the crooks.

I bought a new 328i hardtop convertible BMW in June of 2009. It was stickered at $58k and change, or if you prefer 59.6 ounces of gold at the price on that day. Today you can buy a new BMW hardtop convertible 328i with the same equipment and body style for $55,000 because the euro is lower now than it was then, and that is equal to 30 ounces of gold at today's price. The real question is not can you get a good deal, it is could you get an even better deal by waiting longer yet? Just remember, German car manufacturers did not export a lot of cars to the USA once the shit hit the fan for real last time, you could not get any deal good or bad. Of course by the time it gets that bad again the owners of German luxury cars will be wanting to keep them hidden in the garage anyway lest they be vandalized when in public.

Still Transformer, that is actually a fairly profound question. By the way, when the hardtop comes apart and folds up on itself and tucks neatly away in the trunk people hoot and call my car a transformer, they point and get very unsophisticated like children, it can be fun to see.

Be careful what you wish for. This "panic", which may be of "Grand Supercycle" scale, likely won't stay constrained to financial and economic concerns. Have you taking a look at developments in the Mideast lately? This is not a coincidence. Mass mood is the fabric on which human affairs are shaped.

The post is authoritative, and credible and Tyler did a real service by posting it. The author says, "picking winners will be difficult"; I think for individuals it is certain that Silver and Gold will ramp up in price as these "safe havens" are known to respond to fear and uncertainty.

what the fuck are you smokin dude, SHIT is what this artlce is, to assume we have mark to market assets on U.S bank balance sheets is silly, i mean he writes this shit and thinks he disguised his being a sock puppet...... every thing is fine over here in fairytale land its only a problem in europe,,, go back to sleep sheeple

This article is a joke with its "tarp saved the world" and paved the "way to recovery" bullshit, I'm shocked at my brothers on here swallowing the whole nonsense hook, line and sinker. Wake the fuck up for fuck sakes.

Right on Gorillaonyourback... The azz hat that wrote this is a revisionist historian and paints Paulson as a messiah. What a crock of shit. From the article...

"And these loans [US bank loans] were made in the first place because regulatory arbitrage allowed stealth leverage of the lending on the balance sheets of financial institutions for many years. This levered lending generated short term spikes in both bank profits and most importantly executive compensation - however, the days of excess spread collection and big commercial bank bonuses are now long gone."

Anyone believe this bull shit? Anyone believe US Commercial Bankers are hurting for bonuses? The only way to stop US Commercial Bankers from robbing their own banks and dumping their losses on j6p is to require the bankers have some skin in the game... Their own money! And, we need to let the fuckers fail... No more bailouts!

Europe and the Euro Currency are under attack so the US Dollar can remain the world reserve currency for a while longer... US Ts and FRNs will benefit from a rush to COMPARITIVE safety. This in no way changes the fact that the US is on a totally unstainable path.

i thought much the same. parts of the analysis are useful, indicating the greater leverage, weakest links, etc. in europe, but the implication is rather strong that tarp was useful instead of the first halting, frightened step down what is demonstrably the wrong road. the debt must be restructured, bondholders' hair cut (some bald), new management installed, old bonuses clawed back .... how many times must this be restated to supplant the bailout meme? oh that's right, when we have purchased our own government and mainstream media.

The UE is not the Eurozone. The Eurozone does not make the boundaries of Europe.

Some Europeans countries are in the UE but not in the Eurozone, but all Europeans countries have wealth Amerikkka does not have : industries, infrastructures, agriculture, gold, well-educated and skilled populations that also have savings unlike the American, and also no trillions of debt like the US and the US States !

The UE or the Eurozone or Europe ? First start to understand what these three entities mean before.

If you mean the UE and the Eurozone, these countries are not insolvent. Their national debt and the population debt is absolutely nothing compare to the US Federal State, the 46 US insolvent States and the debt own by the American population.

Infrastructure? Are you kidding me? A bullet train is not infrastructure, just one piece of it. Much of EU's infrastructure is worse than the US

No I'm not kidding. Get a passport and come to Europe. You'll have a blast on poor the US infrastructures look compare to Europe. And we still build some great cars !

Agriculture? US is the worlds largest Agricultural nation

Pollutated by GMO that nobody wants.

Europe is self-sufficient and organic orientated (with Germany and Italy on top) and can sell the surplus to Russia and China.

Fuck you, one country in all of EU has a functional economy because they have hung on to manufacturing.

You're obviously not the smartest guy out there, aren't you ?

Both are finished asshat...just a matter of who goes first and it currently looks like EU

My cautious tone (from a front-row seat here in Austria) about the future of the "European" projekt, is not a ringing endorsement of the United States as that country debases its "extraordinary privilege" of a currency. The citizenry of European countries will most likely start voting for parties even more nationalist (read anti-EU) than the True-Finns once the banks start failing in domino-like precision and austerity becomes the only path for over-burdened public sectors that constitute a much higher % of the workforce than in the USA.

Some here parrot the thought put forward by FOFOA (no disrespect intended, Mr. FO) that the ECB "has the world's biggest gold horde" - however this is a half-truth. The ECB has a bit over 500 tons of gold, the rest belongs to (and is mostly stored in) the sovereign nations themselves. So I'll say what I said yesterday, "The ECB has gold, like the UN has an army."

Good thing the average army in the EU is now much smaller than past decades. Also, I believe a fair amount of manufactuuring is government backed (Airbus for example). What will happen to those projects when the French find themselves bailing out their banks? How much of an army is guarding the gold hordes? Could be interesting indeed.

I just drove through a million acres of cultivated, irrigated land in a US western state, full of wheat, fruit and whatnot. We certainly have farms. I also drove, on this trip, past major agricultural industries, a major aircraft plant and a major software firm. I drove this in my car on a perfectly maintained highway (being expanded for safety) and past a major east-west train corridor, and past enormous hydro generating dams; and paid college tuition for my kid at a major internationally known university. I have the assets you claim I do not, and I am certainly not alone.

So how is it you pontificate about "what we don't have" in Amerika? Debt? Yes; idiotic politicians, yes, but 2/3 of your assertions are simply wrong. Sounds like you need to take a trip over here and see it for yourself.

"The bottom line is that it looks like a Lehman like event is about to be unleashed on Europe WITHOUT an effective TARP like structure fully in place."

Well we will know if Hank paulson was lying or not when we see the result of this. The winding has to start somewhere either through decoupled soverign action or a six sigma soverign event. The synchronous shit can work only for so long.

Their TARP like structure is and has been in place since it's construction. Gold floats on their balance sheet. Drive up the price of gold and thier debts become meaningless. Why is the simplest solution the hardest for everyone to grasp??

The Eurozone is in trouble when they play by the U.S playbook. Change the way the game is played and the problem goes away.

It's good to see a fellow FOFOA reader (or maybe you are FO, or maybe even A?) here to talk some sense. I hadn't thought about it this way, but a revaluation of Europe's gold reserves to the ~$50K estimate (at 2009 prices) would go a long way to 'recapitalizing' Europe's governments and de-capitalizing its bondholders, homeowners, cash-hoarders, insurance-policy buyers, etc.

Anyone dubious about how gold could possibly change the rules of the current "Endgame" would do well to read the most pertinent history lesson regarding our monetary system and how it evolved to its current incarnation here: Once Upon a Time.

It is unlikely that anyone on this board had that degree of knowledge of the role of gold prior to FOFOA posting that a couple days ago.

If you want to understand why the ECB appears complacent, it may be that they know something you don't.

Essential reading, making it quite clear how and why the rules will change.

I'm neither. I'm just a logical thinker and freegold makes sense. Why allow yourself to burn to the ground via debt when you have a get out of debt free card? You can't play the trump card twice, so you save it until the end.

Good point - to save the trump card to the end. At which point cards get turned over and we find out whose paper has gold behind it and whose doesn't, and maybe even which bars are gold and which are tungsten (if we're really lucky!).
I can't help thinking that maybe the long bull market in gold isn't entirely against the interests of TPTB. If the CBs had really wanted to keep gold at 300 then I reckon they had the power and manipulative skills to do so. Sure they don't want it to run too fast. The can will get kicked a lot more, but having support from the (manipulated) market for much higher gold - and having a huge paper mess to sort out - will be useful justification for a major revaluation.

As Chaffinch sez, yup indeed. A gold standard is a price-fixing scheme on gold. It is to gold what a dollar-pegging scheme is to the dollar. You don't even have to own any gold; you only have to peg your paper to the metal, then buy or sell your own currency to stay within some working band.See, for example:

BTW, this is not what FOFOA advocates; he proposes a split between medium of exchange (fiat) and store of value (gold).

Here's how it could go down: some Saturday afternoon (markets are all closed). ECB announces that they are re-valuing their member countries' gold hoards at 50K euros. They will also stand ready to buy/sell at this new price. This may also be accompanied by a 100-1 swap, where 100 units of old euros will be traded for 1 unit of new euros, just to keep the zeroes from getting rowdy.

What is going to stop them? You give them an ounce, they give you 50K in electrons that cost them zilch to produce. If you're them, what's not to like?

I've no idea how this would impact indebted banks, companies, and individuals. I suppose that will be part of the plan, but I'm no FOFOA and my acumen doesn't extend that far.

But why do that at all? It's really just printing, with a gold complication. By printing and understating inflation they're already working towards the same result, just a lot slower than your Saturday afternoon announcement example. Everything they've done so far is focused on prolong, delay, postpone, but some weekend currency revaluation* is anything but.

*I still think what you're talking about is simply currency revaluation, the price of gold is just a side effect. If they wake up one morning and say 'gold is now priced at $50k/oz' the 'value' of gold didn't change at all, just the value of the currency used to exchange for it. Gold is gold. If they make such a proclamation then suddenly your highschool sweethearts cheap earrings are now $20k hanging from her ears. Doesn't mean someone will suddenly trade them for a new car.

Hi Ned
I like the point about the earrings, but I doubt her earrings were 24k, and I doubt they weighed 0.4 ounces. I also doubt the revaluation to as much as 50k per oz. Though I would not argue with it!
With lower assumptions the earrings might only be worth 1,000 not 20,000. Still a heck of a lot, but not new car money. I don't think this side effect would mess up the economy too much. The can will get kicked much further before that happens, and by then most High School Sweethearts will have been suckered by TV ads telling em to send their earrings off to a friendly Central Bank. Those who do hang on to them will need a windfall.

The earings weren't meant to be a watertight example, they were just to make a point.

If gold is 'revalued' as described, an ounce of gold is still very much worth exactly one ounce of gold. Currently in USD's that's worth $1831. If via printing, or some other means (fixing?) it becomes worth $50k USD, then just about anything else priced in USD's is also going to be worth a near equivalent amount more. In other words, the USD would have had to have somehow been devalued.

For example, currently an ounce of gold is 'worth' about 20 barrels of oil. Without starting a discussion on how crazy/not crazy that is, if the price of gold was suddenly $50k USD (via whatever process) do you think someone would exchange 625 barrels of oil for an ounce of the stuff? Of course they wont.

So talk of 'fixing' the price (in USD or other currency) of gold to some point significantly higher than it is now, or increasing it etc, is really just talk of devaluing the relevant currencies. Other than via the possible affects of increased demand you can't just make gold 'worth' more via some decree as to its price.

This is an interesting thread. I like your idea of how it might work (I also like the new price, for obvious reasons!) but as you say, what's not to like? Those with gold become rich in some new currency, and so we spend in the new economy, passing our wealth on, as Keynes would like us to do. The ECB would have pumped a lot of cash into the new economy, as they like to do. No doubt vast amounts will go to banks and banksters, and some rather smaller amounts will go to those wiling to part with their gold in exchange for new paper riches. The CBs will have enviable balance sheets, everything rosy...?
Am I missing something here?
Oh yes, those without gold or other PMs or farmland etc will be stuffed, as happens throughout history on a regular basis. Very sad, but true. The powers that be will look after all their cronies, as per usual.

hear hear -think out of the box, and do a shortcut that cannot be if one follows the rules

no one is going by the U.S. playbook here.

1. as the author noted, they're too late (a rather dumb move on behalf of the ECB, or perhaps smart on behalf of the Bundesbank)

2. TARP didn't work (the U.S. banks will crash and burn regardless of the "main street sacrifice")

3. the prelude to a "unified europe" in the form of a financial chaos will not work. too many seperate interests, and the proponents of a U.S. style TARP (Italy and France) are NOT in control anymore, but find themselves on the wrong end of the stick.

Europe needs to do a "Chavez move" and demand it's gold back from the U.S.. This will likely lead to conflict, but that is since 2008 (currency war) inevitable.

If Europe demanded Gold back from the US it would not be reported on Bloomberg. There would be secret demands and secret compromises. This line of thinking is a can of worms - there have probably been decades of such demands / deals dating back to 1971 or maybe even back to 1933. All we have to go on are 'official figures' and nothing vaguely approaching a reliable independent audit. It's not just Fort Knox - we need a global audit if we are to discover the truth - but that is never going to happen. Sorry if this sounds too Tin Foil Hat.

"Drive up the price of gold and thier debts become meaningless. Why is the simplest solution the hardest for everyone to grasp??"

True, but you're looking it at from the perspective of actually wanting to solve the problem. Remember, these guys (and gals) are after power, not solutions, improvements in social welfare or anything like that. A fiat currency conveys part of their power. So, the flip side of revaluing in gold is a destruction of the relevant fiat (and of power). This "simplest" solution is really a path--roundabout to be sure--back to a gold standard, which is a fine and worthwhile suggestion. However, do you truly not see why those in power resist your suggestion?

"Drive up the price of gold and their debts become meaningless. Why is the simplest solution the hardest for everyone to grasp??"

I'm not following how they'd do this though... How do they 'drive the price up'?

The only way I can think of isn't by 'driving up the price of gold' it's by driving down teh values of their currencies. In other words, PRINT. This drives the price of EVERYTHING up, which also has the effect of making their debts meaningless.

They're already doing this everywhere. 30 year treasury yield are in the low 3's, inflation in the high 3's. Anyone that is buying treasuries in the low 3's is basically making a donation to help pay down the debt. It's not going to happen fast enough to make a difference, but inflation is still somewhat 'in check'.

Nedwardkelly - yes they are driving down the value of paper by printing - all sorts of paper assets will decline hugely in value. The other side of the equation is to drive up the value of real assets. If we have massive inflation then even real estate will be lifted so that negative equity is erased. I do not trust politicians and TPTB, but I do not think they are all quite as stupid as they appear. I think they want a lot of the 'bad things' to happen, although they pretend to address them. I think they want inflation, high unemployment and austerity measures. I don't think that the rise in the 'market' value of gold is a sign that they are losing control. The recent increase in the price of gold keeps the masses away from it, as does it's volatility. I don't think a few ZH bloggers bother them too much - we are not going to make much difference either way.

Let's take a historical example. In 1933 or 34 the US arbitrarily revalued its gold from $20.67 to $35, a devaluation of ~40%. But while some imported goods may have instantly risen in price, most prices did not move nearly as much. If you lived in, say, Mexico at that time, had gold, and shopped across the border, you'd have had a windfall of an extra 40% in purchasing power for goods you bought in the US.

Granted, we are talking about a gold revaluation which is orders of magnitude greater than 1933's, but the point is the same. There is not so much gold in private hands that the CB would have to print up that much extra cash to buy it from whoever wanted to sell. Besides, a lot of that new cash would go to retire old debt (pay mortgages, for sure), that it wouldn't pump up the money supply.

I agree Goldbricker. I don't think the small amount of gold in private hands will worry them at all. Plus my guess is that a substantial proportion of gold in private hands will stay hoarded. Last year I was lucky enough to inherit a few gold coins originally hoarded by an elderly relative long since departed - and subsequently hoarded by 2 successive generations, and now hoarded by yours truly. I am quite likely to keep them until I die too, even if gold does go to 10k. I think once people have lived through really tough times, it leaves them very cautious, and very grateful for 'security'.

In 1933 or 34 the US arbitrarily revalued its gold from $20.67 to $35, a devaluation of ~40%

They didn't revalue their gold. They changed the value of the dollar. An ounce of gold was still worth an ounce of gold.

Gold was 'worth' $20.67 but then they changed it so you needed $35 to buy the same thing, each dollar being 'worth' 40% less.

So to make some pronouncement that 'the price of gold is now fixed at $50k' (meaning they will buy and sell gold at $50k) is just a different spin on currency devaluation. They're already doing that the slow way via printing.

"Do you truly not see why those in power resist your suggestion."
I take the point that fiat and the acceptance of all sorts of paper as wealth has supported their power for a good few decades, but so long as they are in control of the replacement (whether a full gold standard or a watered down gold standard - which I don't 'get' but I know it has been mentioned, or some kind of currency backed by a basket of commodities, or, I hope not, yet another fiat currency backed by the promise of some politicians) then they won't be too heartbroken so long as they retain their power. Those in power have wealth stored in diverse assets - they may lose a little but they will retain the vast majority of their wealth - and they will write the new rulebook, thus ensuring that their power and wealth are preserved in the NWO.
I can see why the suggestion may not be 100% appealing to TPTB but it would not be disastrous for them to revert to a gold standard, since they control a huge portion of the world's gold (I think!).

Perhaps fittingly the Russell is setting a major bearish flag continuation pattern. Techno-junkies will say retest of the lows at minimum, and very much imminent as the Russell is at the point of the flag now. We could see some serious downside action in US markets pre-Fed meeting in order to ensure that QE3 is undertaken.

He'yeah.. he failed to mention that when European debts start to default, it is the USA banks which are the CDS counter-parties and will have to pay up. Of course USA banks don't have anywhere near that kind of cash. Should be interesting to see how they try to rationalize all this away.. more accounting fraud ?

I very much doubt there will be a sufficient political will in the US to create a similar US bank bailout to cover for the counterparty risk of European institutions as there was in 08 to save US financial institutions. But who were the main protection issuers in the US? BAC and JPM? Seriously, no ides who wicked up the ball from AIG FP?

Even though Bernanke/Paulson did the wrong (criminal, too) thing in 2008, when they refused to force the further dilution of the value of bonds & stocks (whether by 90% or 50% or 100%) held by millions of shareholders/bond holders, and they also bailed out those holding bad derivative (i.e. uncollectible - see AIG) bets, and those holding toxic RMBS/CMBS, they allowed the Ponzi (kick the can style) to carry on for a little while longer (while guaranteeing its inevitable death within years, which we're coming towards the end of).

They should have forced the medicine down the throats of everyone, which have been the equivalent of allowing the forest fire to rage on uncontrollably, but it would have burned out the dead wood, scrub and other material that is perfect kindling that had accumulated since the 1980s, in the form of credit bubble overhang toxicity, and allowed for eventual regrowth of real economic activity.

But being the bagmen they are, they couldn't allow this to happen. Geithner, Dudley & Sack, all being bagmen, too, have been all too compliant with their masters' wishes since then, along with the ever compliant Bernanke.

Obama just wants that re-election tally to hit the big billion USD mark, and he's going to source it from Wall Street or the Devil himself, to try and get re-elected.

Europe can't and won't do what was done here, though. Germans won't be stretched so thin that they see their lifelong accumulation of wealth, sweat, tears and hard work get obliterated in an instant, so as to allow the PIIGS+France to party on for a few more short years, at best, while the fundamental flaws in the EU, which have led to their crises, remain as part of their structurally flawed economic (and cultural) infrastructure.

Germans will literally take out their politicians and regulators if push comes to shove.

The disolution of the European Union, economically, is not possible or probable, it is inevitable. And the world will be better off because of it, long term, including the EU member states themselves, PIIGS+France included.

The death of the EU is one more tangible proof that the kind of NWO Agenda that the elite are still striving for is inherently flawed, and moreover, evil, as it induces reliance on an ammoral (I'd argue immoral) Big Brother Government Alliance, whereby people literally have self-sufficiency bred out of them and their children, and they lose free will over their future course of being, and that of their very bodies, as well.

We're all being turned into government issued property now, not being able to shit without asking permission, being told we must send our children to school with people who don't share our moral values, being told that we can't grow and exchange our own food with family & friends, being told that we can't travel without being subject to molestation and/or radioactive scattershot (so some equipment makers can get wealthy and the regulators being bribed can get some graft). When do we get our rights and dignities back?

yes , this reminds me of the Abe Lincoln move which forced the south to reintegrate against their will , something the Euro dare not try , and couldn't pull off. Once central power was the God all other bets were off, because once the elites are sufficiently removed ( distance & power wise from the rabble , they can thence be free to dream what ever dream they want and watch others do the failing. And thus never truly learn from mistakes that have only Remote pain.. In a gentlema's game the servant boy gets whipped, and all you lose is face not skin. But if there is any free loving people left or enough when they awaken it ain't pretty for the Bernie Madoffs, Martha Stewart types that get caught up in it.

For many Europeans those rights and dignities were lost long before, due to their own socialism, not due to European integration.

For trade oriented nations such as the Netherlands, EU disintegration would be a disaster that they will fight to avoid. The Benelux group was at the very core of the EU, when it was still a "Coal and Steel Union".

The scenario of a remaining core-Euro is the most likely in the event of a break-up.

Agree. And a European Union without customs (and endless red tape) was profitable for the Netherlands. However, the sad fact is, that the European Commission messed it all up, by allowing corruption to determine policy, from day one.It's time that the northern countries come to grip with that, and that their politicians failed to do anything about it.

Who's "we"? I've got mine back already ... indeed, I never gave them away.

Just withdraw consent (and all cash from their banking system). Move to where you feel more comfortable ... Why stay in an abusive relationship with a thieving plantation overseer? ... The whole earth is ours to roam notwithstanding that faceless bureaucrats keep drawing lines on maps to divvy up their tribute (where some are greedier than others).

It appears to be starting tonight, and will really pick up steam when we break out of the current triangle to the downside, which could happen tomorrow. In that event, we'll be re-testing the lows by Thurs/Fri. We also have a short term bearish H&S pattern playing out currently, which suggests a re-test of the lows as well.

It will start the day I finally pick the right six numbers in the Powerball only to find the 100 million dollar check they fork over to me will not buy a can of pork 'n beans, because that is how the last 53 years have gone.

If you can't see that because those "forward looking markets" that you've been relying on are, in reality, backwards looking and supremely dense, and you're using them to map your course, you're going to find that you have some serious catching up to do in preparing for what's now headed your way.

No baby it's cause we are fucking numb, okay? It's always disaster and always blowing up and always the shit is hitting the fan...

Nothing personal. Wolf has been cried so many times, it is a certainty the sheep won't know it cause they don't worry about anything any way, and we won't know it for sure because it is an ongoing disaster, in progress, slow mo, po mo, hey bro, can ya spare a dime? I sometimes think, we, by nature, are a torked crew anyway. I know I'm the one in my family that everyone else tells to calm down. I'm also the "responsible" one too. How about you?

While our US gov't continues to spend like a drunken sailor, the Germans are going to force the ruling elite to realize the insanity of the situation.

The Germans won't accept the lie. Neither should we... but my guess is the handlers of the US economy and our sold-us-up the river elected officials will continue to extend and pretend, until they collapse us all.

And if all others accepted the lie which the Party imposed -- if all records told the same tale -- then the lie passed into history and became truth. -- George Orwell, 1984

Germany is a mercantilist export driven country, they can't afford other nations to get all austere now. When Germany has it's export income severed they have always turned to war, It is a nation that would starve in the dark without it's export income and that leaves them little choice but aggression. Keep an eye on those bastards, good people and all, great beer, but when they get hurting for customers they tend to go somewhat ape shit.